Proceedings of the Standing Senate Committee on
National Finance
Issue 5 - Evidence
OTTAWA, Wednesday, March 18, 1997
The Standing Senate Committee on National Finance met this day at 5:30 p.m. to examine the Supplementary Estimates (B) laid before Parliament for the fiscal year ending March 31, 1997.
Senator Terry Stratton (Chairman) in the Chair.
[English]
The Chairman: We have a quorum. We are here to have our first public meeting on the Supplementary Estimates (B) for 1997-98. Witnesses today are from the Treasury Board of Canada.
Please proceed.
Mr. Rick Neville, Assistant Secretary, Expenditure Management Sector, Treasury Board Secretariat: Honourable senators, these are the final, regular Supplementary Estimates for this fiscal year. These estimates were introduced in Parliament on March 9, 1998 and seek Parliament's approval to spend $1.1 billion --
Senator Cools: Perhaps you meant to say these Supplementary Estimates were introduced in the House of Commons. Many ministers say "Parliament" when they mean the House of Commons.
Senator Lynch-Staunton: They were introduced in the Senate, as well.
Senator Cools: Perhaps not on the same day.
Mr. Neville: We are talking about $1.1 billion on new, unforeseen items such as the January 1998 ice storm and other expenditure items provided for either in the February 18, 1997 budget or the February 24, 1998 budget but which were not specifically identified or sufficiently developed in time to ask Parliament's approval through inclusion in the 1997-98 Main Estimates. From a fiscal planning perspective, these amounts represent reallocations of funds within and among departments and agencies or seek Parliament's authority to discharge liabilities that were provided for in the deficits of previous fiscal years.
As you may be aware, an additional purpose of Supplementary Estimates is to provide information to Parliament about changes in projected statutory spending that Parliament has already approved in legislation. These items represent a decrease of $4.9 billion and include, for example, a decrease of $4.5 billion in public debt charges. As a result of these decreases, this will be a negative Supplementary Estimate in the amount of $3.85 billion.
Required spending authority: Some of the major items for which appropriations are requested include $148 million for three departments and agencies related to the January 1998 ice storm which affected eastern Ontario, southern Quebec, and New Brunswick, and I would invite questions on this particular item as we have done additional work and would be pleased to share that with you. Also included are $121.8 million for 11 departments and agencies related to departure incentives for public service employees; $118.8 million for 14 departments and agencies under the carry-forward provisions to meet operational requirements originally provided for in 1996-97. That provision reflects a feature of government's approach to operating budgets intended to reduce year-end spending and improve cash management. It allows managers to carry forward from one fiscal year to the next an amount of up to 5 per cent of the operating budget of the previous fiscal year. The operating budget includes salaries, operating expenses, and minor capital expenditures. We have here $90 million for the Canadian International Development Agency as announced in the February 24, 1998 budget to pay current commitments to United Nations organizations in 1997-98, thus freeing up resources in 1998-99 for developmental initiatives in the areas of environment, health, youth and governance; $84.7 million under the Disaster Financial Assistance Arrangements for the Department of National Defence for assistance related to other Canadian natural disasters such as the 1996 Saguenay flood, the 1997 Manitoba flood, and a number of other floods since 1991 in Newfoundland, New Brunswick, Quebec, Manitoba, Saskatchewan, Alberta, British Columbia, and the Yukon; $72.4 million for the Royal Canadian Mounted Police, chiefly to deter smuggling activity and to work with other federal departments and agencies and provincial and municipal police forces on investigations and prosecutions of complex cases targeting the proceeds of organized crime and other illegally obtained assets for seizure and forfeiture to the Crown; $71.8 million to the Department of Public Works and Government Services for the purchase of the Louis St. Laurent building in Hull, Quebec; $55 million for the Department of Industry for a one-time contribution to the Canadian Network for the Advancement of Research and Education, CANARIE Inc., to create the next generation of high-speed network backbone across Canada for the information highway as announced in the February 24, 1998 budget; and $54.1 million to for the Department of National Defence to realign existing funds from capital to operating expenditures to cover activities primarily related to peacekeeping, Haiti and Bosnia, and the development of Canadian forces for humanitarian assistance in Canada, such as the Red River valley flood.
The above major items represent $816.6 million of the $1,059.1 million, or 77 per cent, for which approval from Parliament is being sought. The $242.5 million balance is spread among a number of other departments, agencies, and Crown corporations, the specific details of which are included in the Supplementary Estimates.
[Translation]
Mr. Neville: The major statutory items to which there are changes in the projected spending amounts are:
D a decrease of $4.5 billion in public debt charges from $46.0 billion printed in the 1997-98 Main Estimates to $41.5 billion reflected in these Supplementary Estimates, reflecting the impact of the decline in interest rates, a reduction in net borrowing requirements, and the change in accounting for pension interest;
D a decrease of $1.4 billion in forecast employment insurance payments resulting from improvements in labour market conditions;
D a downward adjustment of $123 million in the cash component of the Canada Health and Social Transfer paid to the provinces. This is in recognition of a corresponding increase in the value of the tax component of the transfer flowing from higher than expected Personal Income and Corporate tax yields. Legislation new before Parliament to increase the cash component of CHST for 1997-98 and beyond will result in a good part of this downsward revision being reversed so that the 1997-98 CHST cash transfer is $12.5 billion. The Supplementary Estimates publish expenditure forecasts on the basis of legislation currently in force;
D a decrease of $80 million in payments by the Department of Human Resources Development for Old Age Security and the Guaranteed Income Supplement, reflecting changes in the forecasts upon which these payments are based, such as the consumer price index and the number of recipients;
Increases:
D an increase of $429.9 million in equalization payments to provinces by the Department of Finance, reflecting changes in the forecasts upon which these payments are based, such as provincial tax levels, population and tax revenues;
D $180 million for the Office of the Chief Electoral Officer for costs associated with the June 2, 1997 federal election;
D $147 million for the Department of Indian Affairs and Northern Development for the payment of court judgements;
D $90.2 million in payments to lenders in respect of claims for loans made under the Small Business Loans Act. Changes to the program in 1993, designed to increase the availability of loans for small businesses, have resulted in a large increase in claims;
D a net increase of $75.2 million under the Canada Student Loans Program primarily due to the increased number of claims paid to lending institutions under the loan guarantee provision of the Canada Student Loans Act;
D $54.6 million for the Department of Human Resources Development to adjust the deficit in the Government Annuities Account to reflect a revised assessment of liabilities based on 1983 mortality tables.
[English]
The above major items represent decreases of $5.1 billion to statutory expenditures which, when netted against increases of $239.8 million, spread among a number of other departments, agencies and Crown corporations mentioned in the Supplementary Estimates results in a net decrease in forecast statutory expenditures amounting to $4.9 billion.
This concludes my opening remarks.
Senator Kinsella: Mr. Neville, could you provide the members of this committee with a sense of what percentage of these supplementary requests for appropriations were caused by new regulations that came into force in the various departments?
Mr. Neville: Senator, I do not have the percentage for what the new regulations would have entailed.
Senator Kinsella: Let me ask, still at the general level, do you have a sense as to the extent to which additional requests were made by the various departments? The legislation has given ministers regulation-making authority. Does Treasury Board watch for the new regulations that are issued during the year that will have a cost on the budget? When we get to this stage of the year, the Supplementary Estimates are caused by new requirements that are associated directly with the new regulations.
Mr. Neville: Perhaps I can answer that with some general comments and, if you can pick up on that, I would be more than pleased to respond further. As each request is received in the Treasury Board, we do analyze it in terms of its legal aspects.
In terms of legislation, there must be some basis of authority before we can proceed. If we are looking at the statutory component, then each one, by itself, has its own legislation, and that is the bulk of the Supplementary Estimates that are before you today in terms of the net Supplementary Estimates.
If you would turn to the statutory component, it is by far the most significant part. Specifically, with each individual piece of legislation, we do not monitor it in the sense of keeping track so we have a percentage we can give you today. What we would have to do is look at each component and see how that would translate, whether it is a new piece of legislation or whether it is a piece of legislation that has already been on the books for some time.
Senator Kinsella: The piece of legislation that has been on the books for some time provides the authority, in many instances, to the minister or the Governor in Council to make regulations.
Mr. Neville: As an example, every department has its own piece of legislation. Therefore, as you increase the expenditures, as long as it is within the parameters set out within the legislation, then it is appropriate to proceed. We then go to Parliament for additional funds. In that sense, that is how I would present it.
If you are looking for new legislation that would have evolved in the last year requiring additional funds, that is not the way we normally present the estimates in that sense.
Senator Kinsella: Do you have any idea, for example, in the Department of Agriculture and Agri-Food whether there have been new regulations enacted during the past year that has caused that ministry to be making the level of request that is now before us?
Mr. Neville: I understand the question. As I said, we do not present the Supplementary Estimates in that context as to whether it is new legislation or existing legislation. We only ensure that legislation is in place in order to allow us to proceed with the request for Supplementary Estimates. We would need to look at each request to see if it emanates from a new piece of legislation or whether it is based on existing legislation.
Is there a specific amount that comes to mind, or a specific request?
Senator Kinsella: Starting at page 32 in Supplementary Estimates (B), the new appropriation of $9,919,900 under Vote 1B, are there any new regulations that are associated with that?
Mr. Neville: At first glance, that appears to be based on their departmental legislation. I doubt there would be anything new on that specific item. However, I will take a moment to review my notes.
On that particular item, it does not appear as if there is anything new. We would have to go back and verify each component to discover if it is based on that legislation.
Senator Kinsella: Mr. Chairman, I will be wanting to explore this point with the witnesses as we continue our work on the regulations, whether part of the decision-making is the costing to the treasury if those regulations are implemented.
We need to know, if each department has regulation-making authority, what regulations were made during the past fiscal year.
The Chairman: Would that be in the order, to obtain that information?
Senator Kinsella: It is simply a request to all the different line departments to provide you -- so you could provide us -- with a list of new regulations that they made during the fiscal year 1997-98.
Mr. Neville: Let me take that under advisement as to the order of magnitude of work that that would incur.
Senator Kinsella: It would mean a fax to the 18 deputy ministers asking them to send you a copy of any regulations that were made pursuant to legislation under their ministry, then you send that to us.
Mr. Neville: We will try our best to comply.
The Chairman: It may be that such an answer will take a while; is that of what you are forewarning?
Mr. Neville: Yes, it would take some time.
The Chairman: If we must approve these Supplementary Estimates by the end of the second session tomorrow, would Senator Kinsella accept that information as being forthcoming at a later date?
Senator Kinsella: That is fine. Whenever it can be secured, as soon as possible, is fine.
The Chairman: That is fine with the senator as long as you are expeditious in your response.
Mr. Neville: We will be as expeditious as possible.
Senator Cools: There are a couple of questions that I have been asking habitually over the last many years and I am concerned that, to date, I have not received satisfactory or sufficient answers. A couple of months ago, when Mr. Miller appeared before us, I put some of those questions to him. He jokingly indicated that it had been noted that I had been asking those questions, acknowledged that Treasury Board had been neglecting me, and said that I would get some answers soon.
I wanted you to be aware, Mr. Neville, that I am still waiting.
On page 86, under the Department of Justice, and under the heading "Professional and Special Services," there is an amount of $21 million. That strikes me as inordinately high. Can you tell me what is included in that amount?
Mr. Neville: That number is a component of the sub-total under "Objects of Expenditure" which adds up to $43,543,000. There is a capital component which increases it up to $43,893,000. We have taken away from that some transfers from funds that are available, so that gives us $36,478,000.
In order to reconcile, the bulk of that amount of money is in preparation for implementation of the Firearms Act. Basically, the nature of the request is enhanced firearms control, which is part of the government's "safe homes, safe streets" policy agenda. The Department of Justice, as the project sponsor, is seeking funds to prepare for implementation of Bill C-68, an act respecting firearms and other weapons -- otherwise known as the Firearms Act -- passed by Parliament in 1995, which aims to license firearms owners and to register firearms.
Implementation is to start officially on October 1, 1998, with administrative measures such as data entry of business inventories to begin June 1, 1998. While some of the money is currently available to the Department of Justice and its partners in 1997-98, supplementary resources are needed for operational purposes in order to prepare for the implementation of licensing and registration under the Firearms Act.
The department is proceeding to develop the project in phases and, as its needs become more clearly identified, it will be returning to Parliament with specific requests, either as part of the Main Estimates or as future Supplementary Estimates.
Internal reallocations have also been utilized. The current request in total for the department of $41,236,696 breaks down as follows by standard object -- salaries of $7.2 million and other of $34 million, which is back into the specific component you have there.
These funds are for the continuation in 1997-98 of the following activities by the Department of Justice in partnership with the RCMP: initial planning and identification stage for the Canadian Firearms Registration System, including project management; the development of information systems; safety, education and training; transition planning with the provinces and territories, as well as developing an extensive communications and consultations program; developing policy and interim and ongoing compensation arrangements with the provinces and territories and designing the first phase of the CFRS, including building and testing a prototype system. As you are probably aware, the CFRS must be in place by January 1, 2003, as set out in the act.
I should like to point out just one more aspect. There is a two-stage registration process planned in which many of us in this room may be involved at some point. In stage one, an estimated 3 million firearms owners will have until January 1, 2001 to obtain a firearms licence which will be similar to a driver's licence in that it will show that a person is entitled to have or acquire firearms.
Stage two will require firearms owners, within the five-year period leading to January 1, 2003, to register the make, model and serial number of firearms, estimated at 7 million. The two stages are to begin in the fall of 1998.
I am familiar with the project, having been involved in the Treasury Board submission at the time. I can tell you that the majority of the funds are for the software development of the system that I have just been describing.
Senator Cools: You say this is primarily for the development of a software system. In Supplementary Estimates (A), that same item was $9 million. As I read this item, it is now an additional $21 million. Why was this not known only a few months ago?
Mr. Neville: The previous Minister of Justice quoted an incremental cost of $85 million over five years for the CFRS starting in 1995-96 and $33.9 million in other costs for Bill C-68, such as public education, training, policy development, research and staff at the Canadian Firearms Centre. This represents a total cost of $118.9 million for the Firearms Act in its first five years. With anticipated registration revenues of $116.7 million, however, the net cost to the government was estimated to be $2.2 million over that same period. These costs and revenue projections are still incomplete and in the formative stage. A more substantial financial framework for the program is expected soon.
You are seeing the costs of the system developing. It is very normal. You scope out the project at the outset, and once that has been done you know more definitively what your costs will be, at which time you can submit to Parliament the required expenditures. This is a result of more information having been made available for 1997-98.
As I mentioned earlier, I had the privilege of seeing the actual submission through Treasury Board. You are now looking at the developmental costs to implement that system. As I said earlier, the official start is October 1, 1998, so we can expect the costs to be incurred as we speak.
Senator Cools: That is a fair chunk of money. It says "professional and special services." Who are the professionals who are receiving these fees?
Mr. Neville: In government, we have specific standard designations. When we hire consultants, whether they be professionals in their own area of expertise, such as lawyers or chartered accountants, we charge that to that particular standard object. Similarly, when we contract out for services on behalf of government, with consultants, for example, that is the standard object we would use. Rather than have 150 standard objects for Parliament, we report back with a fixed number.
Within that standard object, there are a number of what we call line objects, whether that be in accounting, legal, or engineering, for example. So there is a subset, if you wish, of standard objects which, when added up in the accounts of Canada, give you the summary you see under the standard object.
The Chairman: When you say consulting fees, that does not include the costs of any lawyers within the department? In other words, that is a separate item which is not included?
Mr. Neville: This refers to the third-party costs outside of government that the department would have incurred to acquire the goods or services that are being requested.
The Chairman: The costs of the department, therefore, are in the $41.237 million above?
Mr. Neville: Yes.
The Chairman: That is where the costs for the lawyers, accountants, et cetera, within the department would be found?
Mr. Neville: No. The costs for the people who work in the department themselves would be found in "Salaries, personnel." These are strictly third parties, outside of government, who are providing a service in terms of delivering that particular project.
The Chairman: If it is salaries pertaining to the firearms registration, how do we know what they are?
Mr. Neville: "Salaries" here would mean the people who are working on the project as part of government. That would be in your $8.735 million. If you had a contractor next to them, they would be in your $21.506 million.
Senator Cools: Mr. Neville, for quite some time now I have been trying to discern the dollar amounts paid out by the Department of Justice in the settlement of the Mulroney Airbus lawsuit. I put that question the last time Mr. Miller was here. I have been trying to keep a record of all the dates I have been raising these issues. It seems to me that I have been raising these questions consistently for the last two years.
Perhaps you could now help me and identify to me where I could locate the amounts of money that were paid to Mr. Mulroney's lawyers? It is not in the "Public Accounts." We have looked.
Mr. Neville: In the Supplementary Estimates (B) for 1997-98, there is no specific amount being requested for that item.
Senator Cools: I take it then the moneys have not been paid out yet?
Mr. Neville: I am just stating a fact. In the Supplementary Estimates for 1997-98, there is no particular amount being requested for that particular transaction. That does not mean that the department has not paid for them out of their operating base which has already been provided, but it is not being requested as an additional item in Supplementary Estimates (B).
Senator Lynch-Staunton: The RCMP was blamed for a lot of it and they were to take it out of their own operating budget.
Senator Cools: Not for everything, certainly.
Senator Lynch-Staunton: No, but for a lot of it. In the settlement of the damages and the payment of $1 million-plus to Mulroney, the RCMP were to take that our of their own budget.
Senator Bolduc: And their operating budget is about $800 million.
Senator Lynch-Staunton: They also have a reserve for unexpected surprises.
Senator Cools: I should like to get that information here. Perhaps Mr. Neville can help me with that.
The Chairman: The problem that we had last time, Senator Cools -- and it may be that there was a written response --
Senator Cools: There was no response to this committee.
The Chairman: That is my understanding. When we tried to identify legal costs attributable to the Airbus affair from the Department of Justice, we were told there was no such information available; that they did not keep their books that well; and that they were in the process of changing their method of operation and accounting for time spent on different accounts. In that case, there was none.
At that time, it struck me as incomprehensible that lawyers would not do that because law firms and consulting practices keep time sheets. That is how they survive. I could not understand why the Department of Justice would not do the same thing. We had requested a response back then and that is still outstanding. We will be persistent with that.
Mr. Neville: The good news is that in the Supplementary Estimates (B) proposal that is before you, there is no specific request for it. That is what I am defending.
The Chairman: I understand that. You realize that if we do not get an appropriate answer in the Supplementary Estimates (B) because they are not in there -- and they will obviously not be in the Main Estimates for this next fiscal year -- we will still continue in our study to ask for a response to these questions.
Mr. Neville: In a response provided on March 19, 1997, dealing with Justice Canada, the reference states that no additional funds are included in these Supplementary Estimates for item "Mulroney Airbus settlement."
Senator Kinsella: Who gave that response?
Mr. Neville: The response was from my office at the time.
Senator Cools: That is a response to whom?
Mr. Neville: The question is:
Where in the Supplementary Estimates document are the funds used by the government to settle the Mulroney case?
The answer provided was:
The funds to cover the 1996-97 Department of Justice's share of the defendant's costs incurred for Airbus are coming from existing funds within the Department. The Department has not requested additional resources for the 1996-97 fiscal year therefore no amount for Airbus is included in the Supplementary Estimates.
Senator Cools: From what are you reading?
Mr. Neville: I am reading from the response.
The Chairman: I am aware of that response.
Mr. Neville: Under the settlement agreement, the RCMP agreed to pay Mr. Mulroney's legal fees and disbursements. The settlement has not been made as the amount to be paid has not yet been determined.
Senator Cools: What is the date on the document?
Mr. Neville: That is March 19, 1997.
Senator Cools: To whom was that sent?
Mr. Neville: It was sent to the Honourable Senator Tkachuk, c.c. to John Desmarais, and was signed March 19, 1997, by David W. Miller.
The Chairman: I recall that. The costs are covered off from within the normal operating costs of the Department of Justice. We wanted a response then, that if it comes from the normal operating costs of the Department of Justice, surely you can identify what those costs were within the Department of Justice. That was when we got a stonewall, it would appear, because we could not get a response. They said that they do not keep appropriate time sheets or appropriate time schedules to be able to tell us. We are not satisfied with that answer.
Mr. Neville: Senator Cools, would you care to rephrase your question very clearly so that I am quite comfortable with what you are asking?
Senator Cools: I read my material pretty carefully. Somehow, that one has eluded me. I have other responses from the department on the record. On one particular occasion, the deputy minister was here before us. At that time we asked him very carefully how much a lawyer from Toronto named Mr. Michael Code had been paid. He had difficulty identifying the amount here before us on the committee.
He wrote back to us subsequently to say that the gentleman had been paid $32,000. I learned subsequently that payment was only on one occasion and that there was a subsequent occasion on which he was paid another approximately $50,000.
I think the point the chairman is making is that the committee has been trying to gather before it, in a comprehensive way, the total dollar figures spent by the government on this particular Airbus case. We want to know the amounts paid out to the government's lawyers, to Mr. Sheppard et al., and Michael Code, the entire range of them, whoever they all may be, and in addition to that, the other amounts of money paid out to Mr. Mulroney's lawyers.
What I have been trying to gather on one page or in one place is a comprehensive review of the total costs of this Airbus matter to the taxpayers of Canada.
Senator Lynch-Staunton: If I may, we do not want the third-party costs, just the costs incurred by the department employees themselves, which is an astronomic amount when you look at the people involved and the time involved.
Senator Cools: It is an astronomic amount. One has to keep going through the record. You must appreciate our frustration. It is the sort of situation where you keep asking and asking, and you just keep asking. Essentially, people just stop asking.
I have been trying to keep a thorough record of my questions.
Senator Kinsella: Perhaps we should stop approving Supplementary Estimates.
Senator Cools: I started to ask questions early on. I asked back on November 6, 1997, and that showed up in our report. I believe I asked on October 23, 1996, and also in March, 1996. This is a few years now.
Mr. Neville: Senator, I expect to come back here, maybe tomorrow and maybe the next time. With that as a prelude, I am aware of your sensitivities. My commitment will be to go back and try to obtain that information for you. Bear in mind, I will be asking the Department of Justice and perhaps others to do that. I will need their cooperation. I will do my best.
I want to come back to the fact that what is in front of you tonight is the Supplementary Estimates (B), and in that particular document there is no amount specifically requested.
I know of your frustration. I have read it. Trust me, I have read it. I will do what I can to try to find that information for you. Fair enough?
Senator Cools: Very well, thank you.
Senator Kinsella: I do not understand the answer to Senator Cools' question regarding page 86 and the Department of Justice. She first asked about professional and special services of $21 million. You gave an explanation. If I understood correctly, most of that is going to services rendered around the software system that is being set in place.
Mr. Neville: Yes.
Senator Kinsella: What about the $41 million under preparation for implementation of the Firearms Act?
Mr. Andrew Lieff, Assistant Director, Estimates Division, Expenditure Management Sector, Treasury Board Secretariat: Basically, in order to provide as much information as possible, we provided a general explanation for the whole $41 million, which is preparation for the implementation of the Firearms Act, as set out under the explanation of requirement.
Then we break that same amount out into specific components: How much is spent on salaries; how much is spent on professional and special services. What you are really seeing there is a break-out as to the type of services we are purchasing in order to implement that $41 million. It is not different money; it is just a different line.
Senator Bolduc: What you are telling us is that the professional and special services is mostly for information systems.
Mr. Lieff: That is right, as, indeed, is most of the $41 million.
Mr. Neville: Does that answer your question?
Senator Kinsella: That is fine.
Mr. Neville: Bear in mind, there is one other point; I am relatively new and I would like to share it with you. Based on precedent, we do net out any non-spent money that is available from a vote. Although we have an expenditure that may be much higher, what we print, what we actually show you, may be a lower number, because we have taken money that is available in another vote and offset that, right or wrong.
Senator Kinsella: That is an example of something being done because of Bill C-68. Under Bill C-68, there are regulations.
Mr. Neville: Yes.
Senator Kinsella: Is part of that money that has been spent also on the preparation of the regulations and the implementation of the regulations?
Mr. Neville: Yes, that is a fair statement. Honourable senators may remember that I said we would have to go through each one. That is what we will have to do. However, if you want to prove your point, there is one example.
Senator Bolduc: You may have lawyers in the department, under personnel expenditures, number 1; and you may have, under professional and special services, lawyers from outside also on that.
Mr. Neville: I could spend an hour being more precise on that, because it is probably one of the anomalies in government -- there are many, but that is one -- where lawyers who work for the Department of Justice may normally be sitting in a department and their salaries are charged back to Justice. So therefore, under Justice, you have a salary. However, there are a number of instances where departments themselves will supplement the Justice employees -- or Justice vote, if you wish -- and pay for some of the in-house lawyers. It is a long story, and if you wanted to go into that sometime, I would be happy to explain it to you.
Senator Bolduc: And you say that is particularly true for the lawyers.
Mr. Neville: Yes. I do not think it applies to any other sector than the lawyers.
Senator Cools: To add to that, which we will visit at some point in time, I was reading some testimony a few months ago of the Deputy Minister of Justice Mr. Thompson, before the Senate committee on the Pearson inquiry. Somewhere buried in that testimony, he also talks about a fund of $38 million or $40 million which they have at their disposal to hire outside legal help, in case the 1,200 lawyers that they have are inadequate. At some point in time, we want to visit that, too.
Senator Lynch-Staunton: I would like to go to the Transport department, page 111 in particular, and the item on which I would like some details is identified as additional operating costs primarily related to reduced airport lease revenues, $37,200,000.
Mr. Neville: I am familiar with the issue. I am glad you mentioned the word "primarily." The increase here is $37,200,000, and it does say primarily related to reduced airport lease revenues. There are other components. Basically, the reduced airport lease revenues and increased operating costs add up to $21.7 million. The $21.7 increase in operating costs is primarily the result of a decline in airport authority lease revenues of $30.5 million. The major factors that contributed to the overall reduction in projected airport lease revenues were as follows. I will only highlight the major ones -- payment in lieu of taxes; decrease in traffic volume; timing of payments; accelerated transfers; chattel sale; offset with some additional costs. I will take each one individually.
Payments in lieu of taxes were $9.5 million.
Senator Lynch-Staunton: I would like to know which airports we are talking about.
Mr. Neville: It involves a number of them. I will touch on each one.
With respect to payments in lieu of taxes, due to a 1992 Quebec tax reform in progress at the time of the transfer of the airport authority from Transport Canada to l'aéroport de Montréal, the impact of this particular proposal on the ground lease revenues for the 1992 to 1996 lease years resulted in a loss of $9.5 million. The final effects were not known until late 1996, and the settlement of the dispute, including $1.5 million of the applicable accrued interest, was only reached in early 1997.
It was agreed by Transport Canada and l'aéroport de Montréal that the airport authority should not be affected by the application of the new taxation regime in Quebec. At the time of transfer, both parties agreed to review and adjust, if necessary, the $14 million included in the cash operating costs of the ground lease agreement to ensure its appropriateness following implementation of the new regime.
An independent study was undertaken, and it was concluded that the general terminal cash operating costs and concession cash operating costs included in the lease did not adequately cover the full effect of the tax reform.
There were also lease amendments. There was an amendment to the Vancouver lease agreement, which was prompted by a growth in traffic. This also will result in Transport Canada forgoing $4 million a year for the next 10 years.
Similar to Vancouver's lease amendments, there has been an impact on the Calgary and Edmonton's amended lease agreements, which will result in $2 million lost revenue to Transport Canada in 1997-98.
I also have available a list of the airports that have now introduced airport improvement fees. L'aéroport de Montréal, as of November 1, 1997, is now charging $10. I think most of us have been through Vancouver, and we are not surprised with that one. It is $5 for passengers travelling to destinationswithin British Columbia and the Yukon, $10 for passengers travelling to other North Americandestinations, and $15 for passengers travelling to destinations outside North America.
The fee at Edmonton Regional Airport as of April 12, 1997, is similar to Vancouver -- $5 and $10. The fee at Calgary International Airport as of October 1, 1997, is $5 for departing passengers. The fee does not apply to passengers connecting through Calgary International Airport, nor are fees required for children under the age of two. For the Winnipeg Airport Authority, the fees will be airline collected, which is a little different. It should cost $5 for departing passengers, and this fee should commence on July 1, 1998. For Thunder Bay, discussions are still underway, but the proposed fee at this point is $10, starting very soon.
With respect to declining traffic volumes, in accordance with the ground lease agreement for l'aéroport de Montréal, passenger volumes are factored into lease payment calculations. In 1997, projected passenger volumes at l'aéroport de Montréal decreased, reducing the 1997-98 lease payment by $6 million. When the airport authority audit is conducted in the spring, this amount may be adjusted.
With respect to timing of payments, Vancouver has paid $3.5 million less than Transport's estimated lease revenue value due to timing adjustments for fiscal year end. This is considered temporary and is expected to be corrected once the annual audit of the airport is completed in April.
There is another adjusting entry. Adjusting forecasts with actuals is $2.6 million. This affects the Ottawa, Toronto and Winnipeg airports. In the absence of signed ground lease agreements, estimated amounts had to be factored into the Main Estimates revenue provisions. These estimates were $2.6 million higher than the actual as prescribed under the signed agreements.
There are also accelerated transfers for $1.8 million. These are accelerated transfers at Moncton and Thunder Bay airports representing subsidy payments. The airports were originally expected to be transferred in 1998-99, but because of the acceleration, the amount is required in 1997-98.
With respect to chattel sales, at the time of the transfer of the Edmonton airport in 1992, there was a dispute over the chattel sale related to the appropriateness of the original amount paid based on generally accepted accounting principles. This dispute has since been resolved, and the settlement of the chattel sale will result in $1.1 million and is consistent with other local airport authorities and Canadian airport authorities.
That is the primary amount. There are other components in that number. If you wish, I will spend the time to go over it.
Senator Lynch-Staunton: I do not think I could absorb it all as quickly as you gave it.
Have there been further rent reductions allowed at Pearson Airport or the Greater Toronto Airport Authority? We discussed these at length last fall, because in the Supplementary Estimates (A), there was an item of revenue adjustment due to amendments of the airport lease in Toronto of 97.6. I do not want to go over that again. However, I do want to know in Supplementary Estimates (B) under "Additional Operating Costs," the reduced airport less revenue item, whether there is a further rent reduction for Toronto?
Mr. Neville: The answer is, no, there is not.
Senator Lynch-Staunton: Are there any rent reductions for any other airports?
Mr. Neville: None other than what I have listed.
Senator Lynch-Staunton: Those are one-shot affairs.
Mr. Neville: I would think they are one-shot affairs, unless there is something of which I am not aware.
Senator Lynch-Staunton: You mentioned two airports because, as I understood it, the traffic had increased.
Mr. Neville: Let us be more specific. Where there is a lease agreement, and that is part of the lease agreement, it is probably revisited on an annual basis based on the audit. That would make sense.
Senator Lynch-Staunton: I do not understand why increased traffic would lead to decreased revenue. I think that is what I heard you say, that for two airports the revenue traffic forecast was higher.
Mr. Neville: Sorry, I meant it was lower.
Senator Lynch-Staunton: I may have misunderstood you. Is it because the lease payments in most of these cases are based on traffic reaching certain levels?
Mr. Neville: Exactly.
Senator Lynch-Staunton: When we look at the Estimates, unlike a budget, we are looking at expenditures for a 12-month period. We are not looking at expenditures forecasted or spent in future fiscal years.
Mr. Neville: Correct.
Senator Lynch-Staunton: The criticism addressed to those who prepare the budget -- and we see the debate between Finance and the Auditor General -- does not apply in this case?
Mr. Neville: Let us be sure we are crystal clear. When we talk about the budget, we are talking about planned expenditures. To make a simple analogy, that could be $100 million of planned expenditures. That could be for the year coming up, or it could be for a different period of time.
When we prepare the Estimates and table the Estimates, we are specifically referring to the amounts for that fiscal year, the 12 month period.
Senator Lynch-Staunton: When we come to our discussions next week on the Estimates for the next fiscal year, I do not need to look for anything in here on the Millennium Scholarship Fund because it is not there. It is not in the Main Estimates, but it has been put in the budget for this year?
Mr. Neville: The Millennium Scholarship Fund was announced in the February 1998 budget. It has a time line that goes out several years. The accounting for that particular transaction, based on the government's accounting policy, will be to account for it in the 1997-98 fiscal year, subject to a number of conditions.
In terms of when you would see it as a request for money to actually make payments, it will be, one, after it has been through Parliament, and then it will show either in the Supplementary Estimates or in the Main Estimates, depending on the appropriate cycle.
Senator Bolduc: But it will be in two years?
Mr. Neville: It could be in two years but there could be a component for the year 1998-99, depending on when it is voted in Parliament. Senator, is that clear?
Senator Lynch-Staunton: It is very clear and very reassuring. That is the answer I expected. We get a better idea of where we are financially and what we are spending through these books than we do through the budget on a year-to-year basis.
Mr. Neville: In all fairness, as a concerned Canadian, I certainly like to have the plan. I like to put it in context. I like to talk about the fiscal framework and the plan.
Senator Forest: My questions will require a short answer, I think. In the paper handed out tonight, $148 million relates to the ice storm. Is that the final figure, or are we still looking at more expenditures in that regard?
Mr. Neville: I am very pleased that you asked that question. We spent a lot of time in the last couple of weeks trying to prepare the documentation that could give you a better overall view of what is being requested in terms of the ice storm. You are asking specifically about the ice storm and I will only answer that, but we could broaden that to otherdisasters.
Senator Forest: That is really my question.
Mr. Neville: Given its recent date, its effects on Eastern Ontario, Quebec and New Brunswick and ongoing discussions between the federal government and provincial governments, it is a little too early to estimate the total federal government costs related to January 1998 ice storm. That is appropriate. We are all living with some of the aftermath and that has not been finalized. I will try to tell you where we are today.
These Supplementary Estimates include $148 million for National Defence and the Disaster Financial Assistance Arrangements. I would love to spend some time on that. I now know a little bit more. That fund is $75 million and Operation Recuperation is $60 million. The Agriculture and Agri-Food Canada amount is $2 million. The Federal Office of Regional Development Quebec, known as FORD-Q, requires $10 million. There are a number of details which I can give you.
The federal government has committed -- we are back to words like planned, committed -- a total of $336 million to date for both financial assistance programs and incremental costs incurred by departments.
The final cost of the financial assistance will depend on ongoing discussions with the three provinces and whether those claiming assistance meet eligibility criteria. Parliamentary approval will be sought through 1998-99 Supplementary Estimates and in Main Estimates in upcoming years.
The following table lists the federal commitments to date by province where available. They are categorized under two main programs. One is financial assistance; that has a complete set of protocols and it is quite formal. That is an interesting area because it sets out percentage of contribution. We can return to that. However, insofar as financial assistance, Ontario will be receiving, for financial assistance programs, $35 million; Quebec will be receiving $218 million; New Brunswick will be receiving $5 million. The total there is $263 million in planned federal commitments under the financial assistance programs.
That amount is coming out of a fund that is quite specific in terms of its impact and its use. Specifically in that $263 million, we have National Defence, advances under the Disaster Financial Assistance Arrangements, in the amount of $25 million for Ontario, $50 for Quebec, for a total of $75. Agriculture and Agri-Food, under their own provision, have for Quebec $50 million. Economic Development Agency of Canada for the regions of Quebec, FORD-Q, has $93 million for Quebec. Human Resources Development Storm Assistance Fund, clean-up, rebuilding, for Ontario has $10 million, for Quebec $25 million, and New Brunswick $5 million. Human Resources Development Youth Programs has, at this point, planned in total and not allocated by province $5 million. That is the financial assistance programs.
The incremental operating costs are the costs that departments are spending internally on their own staff, their own costs associated with third-party requirements. We have here $73 million which, when added to the financial assistance program, brings us to the $336 million. Broken down by province, Ontario is at $20 million, Quebec $46 million, and New Brunswick, $0.5 million.
The bulk of that is in National Defence Operation Recuperation for mobilization and support of civilian relief efforts. In Ontario, we have $20 million, in Quebec $40 million, in New Brunswick $0.5 million, totalling $60.5 million. FORD-Q has $7 million. Other departments are not broken out specifically, nor by province, but in total it adds up to $6 million. Those are the planned expenditures.
The $148 million is being presented here in terms of 1997-98 Supplementary Estimates (B).As to contributions to provinces, first of all, for National Defence Disaster Financial Assistance Arrangements, we have, for Ontario, $25 million; for Quebec $50 million, totalling $75 million. For Agriculture and Agri-Food recovery for farm enterprises, we have $2 million Quebec. The FORD-Q office recovery for business, only within Quebec, is $10 million.
The totals are Ontario, $25 million, Quebec, $62 million, and total for both is $87 million.
The operating costs, costs incurred by the departments themselves and not related to those special programs, are, in total, $61 million. For National Defence Operation Mobilization, we have New Brunswick, $0.5 million, Ontario $20 million, Quebec $40 million, for a total of $60 million. FORD-Q is $1 million in Quebec.
The total operating cost by province would be New Brunswick, $0.5 million, Ontario $20 million, Quebec $41 million, for a total of $61 million.
When you add those two numbers, the contributions to provinces for financial assistance programs and operating costs incurred by departments, you have a total of $61 million. The total ice storm expense here is $148 million. It is the first time we have put this together and I am pleased to share it with you.
Senator Forest: The rest of the $238 million will come up in a future estimate?
Mr. Neville: Yes. As a request is put forward for additional funding in order to make the payments and based on final negotiations, they will either appear in the Main Estimates or in Supplementary Estimates.
Senator Forest: I see $121.8 million for departments and agencies related to departure incentives for public service employees. As a ballpark figure, are we pretty well through with this downsizing that required these incentives?
Mr. Neville: Would you like a 10-minute answer or a quick answer?
Senator Forest: I would like the quick answer.
Mr. Neville: Basically, 1998-99 will be the last year that we go through that. That is the short answer.
The Chairman: Dealing with protocols, I recall that there were forest fires in Manitoba that took years to resolve. It was very frustrating, and each side tried to do what it could. The evidence points to the fact that you will have the same problem with the premier of Quebec over the ice storm. How do we try to resolve it so that there is not the same problem with the ice storm that there was with the forest fires in Manitoba? Is that all to do with protocol, or is this all to do with politics?
Mr. Neville: I have read the documentation several times to get myself familiar with it, and it is not as easy as it seems. There is a very complex number of steps which must be taken before final payment can be made. I would like to take a minute, if I could, to prove that point.
I would like to just go through the protocols, if I could. Please bear with me. I will break this into two parts -- the protocols in terms of the policies, and then the numbers. Then I will come back to Manitoba to show you what it is.
First, the province must make a formal request for the DFAA to actually be implemented. Based on this request, the disaster must be declared by Order in Council to be of concern to the federal government in accordance with the Emergency Preparedness Act. Then, in order for funding to be provided, a number of steps must take place and criteria must be met. All expenditures under the DFAA are federally audited to ensure that they are eligible for cost sharing with the province under the terms and conditions of the DFAA and in accordance with the guidelines. No final payments, which are made on a ex post facto basis, are initiated until all provincial expenditures have been fully audited and have met the criteria.
I found it interesting to gain a better understanding of how this works. One can start with, as an example, the Saguenay flood. The total cost of the Saguenay flood, let us say for argument's sake, is $630 million. That is what you see in the newspaper. That is one number.
The province will then determine what constitutes eligible costs under its own program. As an example only, $600 million would be the amount eligible. The number is not $630 million any more. It is $600 million for the province to be deemed to be responsible. That is the second number. However, when the province seeks federal financial assistance, the eligible costs as determined under the terms and conditions of the DFAA may differ again from the province's. Those eligible costs in the DFAA are for repair and replacement of public infrastructure and those for income replacement for individuals. This is what I found interesting. A sharing takes place. Once the eligible costs are determined, the minister for Emergency Preparedness Canada is responsible for determining the amounts to be paid based on a per capita formula as defined.
I did not understand previously that if a province, such as Quebec, in this example, has approximately 7.5 million inhabitants, if the expenditures of that particular disaster only add up to $7.5 million or less, there is no federal share. If, on the other hand, the expenditures exceed the $7 million and go between $7 million plus one to $14.8 million, the federal government will share on a 50/50 basis. If it increases by $2, it goes up to 75 per cent, and anything over $5 per capita goes up to 90 per cent per cent.
Going back to our example where we see that $600 million being the provincial share, we may, based on our criteria, first of all, only deem to be subject to the formula $300 million. Now you take the $300 million, and you apply the formula. For the first $7 million, there is no federal sharing. For the next $14 million, there is $7 million. For the next $14 million, there is $11 million. For the balance, $263 million, there is $236 million. Of the $300 million eligible for cost sharing, $255 million would be the federal amount paid.
Let us think this through. You heard the number $630 million. That is the total cost. You heard the number $600 million, being the provincial share. You heard the number $300 million, being the eligible amount for federal cost sharing. Then I am telling you that the number that will actually be paid out in this example would be $255. You can play that anyway you like in terms of whether 255 on 300 is a good percentage of contribution. It is close to 75 per cent. Therefore, 75 per cent of 300 is a good number to use. However, you could argue that 255 is a much smaller percentage of 600, and it is a much smaller number than 630.
I thought I would explain to you this evening how it works. I am giving you the simplistic version, but it is detailed in the actual documentation we have. Obviously, there could be areas of dispute.
Senator Lynch-Staunton: I have a quick question on the 255 out of the 600. Who is liable for the 345 that is left? Is the province on the hook for it?
Mr. Neville: Yes. First, the difference between the 630 and the 600 is not the province. We agree?
Senator Lynch-Staunton: You say the 600 can be divided between federal and provincial.
Mr. Neville: That is right. The balance would be a provincial responsibility.
Senator Lynch-Staunton: The 345?
Mr. Neville: Yes.
Senator Lynch-Staunton: Does that mean the province accepts to pick up the balance?
Mr. Neville: Let us put it this way: By deduction, we only pay the federal share, which in this case would be 255.
Senator Lynch-Staunton: I am wondering, once any province identifies an amount as being eligible, does it automatically cover the difference once it has settled with the federal government as to its share?
Mr. Neville: I will not speak for the provinces, but my understanding is yes.
Coming back to this last table as referenced by the Chairman, we have a list of all the payments that have been made in terms of what is being requested. You mentioned Manitoba. In the 1997 flood, payments to date have been made totalling $25 million, and in the Supplementary Estimates there is another $25 million.
There was a flood back in 1993. You may recall that. We are still dealing with that. We have paid $8.6 million. This was 1993, and we are now in 1998. In these Supplementary Estimates (B), there is another $7.3 million, five years later. As it was pointed out to me in going over the documentation, we go back 10 years on some of these. We go back to 1988, the Quebec earthquake, where we are still settling. To answer your question, it takes a long time to settle some of these claims.
The Chairman: That adds to the frustration on the part of the provinces, I would imagine. That seems a long period of time.
Mr. Neville: There are audits involved.
The Chairman: In order for you to pay the money, you have to audit the books, and they have to provide the books in order for you to audit, and that is what drags it out.
Mr. Neville: Parliament can judge otherwise, but that is the formula.
Mr. Lieff: With the Saguenay flood, because the relief was required urgently, and with the ice storm and the Red River, the act provides for making advances based on a reasonable assessment of what the overall cost might be. Actually, the money that is in the Supplementary Estimates is an advance. We will catch up. It may take years to settle and cross the T's and dot the I's, but we are hoping the money will get there as soon as possible and avoid the situation you referred to about the forest fires in Manitoba.
Mr. Neville: You will find, for many years to come, charges will be incurred.
Senator Bolduc: The Saguenay floods were during the summertime, and Parliament was not sitting. You did not have the budgets. Did you use the special mandates?
Mr. Lieff: We used Treasury Board Vote 5, which is a contingency fund for just this kind of disaster.
The Chairman: If there are no other questions at this stage, we will break off now and reconvene here tomorrow.
The committee adjourned.